4. Further action on models
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The market risk proposals issued by the Basle Committee in April 1995 expressly invited comment from IOSCO The Technical Committee welcomes the Basle Committee's invitation to comment on the use of value at risk models for the purposes of calculating capital for market risk. The Committee also recognises the growing importance of value at risk models in the securities industry, and wishes to explore further the possibility of considering the use of such models for the purposes of calculating regulatory capital requirements. However, in light of the considerations outlined in this paper, the much greater significance of market risk capital requirements for securities firms, the lack of data regarding the reliability of such models in practice, and the need to await the results of current initiations such as the DPG in the US' the Committee does not feel that it is appropriate at this stage for securities regulators to set a timescale for such a development.
The Committee believes that it would be highly desirable that those regulators who have experience of models both in the banking and securities regulatory field should work together on model testing and analysis in order to obtain a better understanding of the issues associated with this development. In particular further consideration should be given to the development of standards of best practice to be adopted by firms which wish to use models for regulatory purposes. The Committee therefore looks forward to the opportunity for the appropriate working parties of IOSCO and the Basle Committee to work jointly in this important area of common interest.
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The Implications for Securities Regulators of the Increased Use of Value at Risk Models by Securities Firms
